tv Real Money With Ali Velshi Al Jazeera October 7, 2013 7:00pm-7:31pm EDT
this is al jazeera america live from new york city. i'm tony harris with a look at today's top starries. seven days after the government partially shutdown, there's still no end to the stalemate. president obama said there are enough votes to end the shutdown. there is outrage in libya after a leader was captured outside of his home in tripoli on saturday, he is believed to be the mastermind behind the u.s. embassy bombings in kenya. hundreds of miles away u.s.
military tried to capture a leader of the al-shabab network, but that attempt filed. and violence continues in iraq. it's heightens fears that iraq will see more sectarian killings. in egypt a suicide blast killed at least four people in sinai. the dead and injured included several police officers. those are the headlines this hour. i'm tony harris. "real money with ali velshi" is next on al jazeera america. ♪ ♪ while washington fiddles, investors large and small are starting to burn just thinking what damage a default could do to their wealth. is buying gold the smart move or
a fool'ser rand? we'll help you take emotion out of your approach to keeping your money safe. i'm ali velshi. this is "real money." ♪ this is "real money." you are the most important part of the show, so join our live conversation for the next half hour by using the hashtag ajreal money on twitter. we're ten days away from when the treasury secretary says his -- [ technical difficulties ] -- so let me start with what the actual problem is. every day the treasury brings in money from taxes and other sources, and it pays money out. some days the government takes in more money than it pays out, but in general it pays out more
than it takes in. to make up the shortfall, the treasury needs to borrow money from the public. this is a copy of a treasury security. this is a 30-year savings bond. there are treasury bills, notes, and other bonds that investors can purchase to lend money to the government for varying length of time. but they all work the same way, you lend the government a specified amount of money and you get money in return for doing so. tresh shoers are one of the most markable securities in the world, because they are one of the safest investments out there. interest on treasuries is one of the most important payments the treasury makes each month. defaulting on interest payments would send shock waves across the financial system. any default, even a temporary one, could disrupt the global flow of credit. to get scenes of what we're
talking about, five years ago the collapse of lehman brothers send fear through the entire financial global system leading to a freeze on credit and a worldwide recession. this time around the steaks are higher. the united states bank is the largest economy in the world, no one imagines that the u.s. will actually default on its obligations, but two years ago we came close. patricia takes us back in time. >> reporter: raising the nation's debt ceiling had been a routine matter until 2011 when republicans in congress refused to authorize an increase arguing the nation's spending was out of control. the issue quickly became not whether to reduce the nation's deficit but how. >> in 2011 there was bipartisan interest in doing something to bring down the deficit. deficits were extremely high by historical standards, and the defeating was about what to do not whether to do something.
>> reporter: republicans wants to cut government spending, while democrats favored a mix to spending and an end to tax breaks to large companies. global markets trembled. >> in 2011, the market reaction happens earlier that there was great concern in both, you know, falling consumer confidence, falling stark market. there was a lot of concern that washington might not be able to get itself act together and as a result you could see in that impasse, effects on the economy well befor we got to the deadline. >> reporter: an agreement was reached at the 11th hour, but it wasn't until after the standoff was signed that the actions hit home. u.s. sovereign debt was
downgraded from aaa. as the treasury department noted last week, the fallout from the 2011 debt ceiling impasse left deep scars on the economy. including a decline in consumption and increase financing costs for consumers and businesses. >> today on twitter and facebook we have been asking you, are you worried that the u.s. could slip into a recession if it hits the debt ceiling. don says . . . hope so. and this viewer says . . . wow. tell me what you think by tweeting me at ali velshi.
investors across the globe pulled out more than a billion dollars from stock funds in early october as fierce grow. true that pails in comparison to the 60 billion investors pulled out in 2011. but it's early folks so let's ask a professional how she is measuring the risk of stock market selloffs and how you should prepare. erin good to see you. >> thank you. >> you think if the u.s. really does default on its debt that maybe people should keep their money in their mattress. >> yes, if we do default, yes, we're not just looking at a recession, we're looking at potential depression for the u.s. and full-on global recession --
[ technical difficulties ] -- basically all markets are treating it as if it's a zero chance of likelihood. >> the likelihood that the u.s. isn't going to pay its bills is very unlikely. there is some likelihood they may not pay some bills. >> exactly. but with respect to the treshries, we expect that to be extremely low. right now the cdf spreads are trading at about 45 basis points. >> these are the credit defaults -- >> yes. sorry. the credit default swaps, and when you guy a swap, you have to pay a spread or insurance premium. for the us it is about 45 basis points, which is in line historically for what it has been. so the cdf spreads are trading
even higher than hot it is actually rated. >> so if you look back to the stock market a month ago, we have seen a few percentage points come off of that. so you have done pretty well for the year. but you have had some points shaved off, but you wouldn't typically see this kind of a pullback. it does seem to be associated with people who are fearful the government will do the wrong thing. >> or there is general uncertainty. you often simonny pull out or a slight pull back when we don't know what will happen. we're also heading into q3 earnings season. >> right. >> so you are also worried about how people will report. >> general advice for viewers who say what do i do? >> actually review this as a potential opportunity. for us, particularly the most
recent statements that came out of the white house they were saying that they would have a temporary increase of the debt ceiling for the next few weeks while they hash this out, so this mean there is going to be uncertainty for a couple of weeks which overlaps with earnings season. for us as investors this is where we would use fears and use that as a buying opportunity, particularly with high, quality companies that we know are going to deliver quarter after quarter, let the overreactions, use those opportunities, so one of the names we really like is gaap. investors are worried about retail companies specifically. and gaap companies are consistent in being able to deliver quarter after quarter.
and we expect them to consist t consistently beat for this quarter. >> this is good. so the doomsday scenario now are not expecting to come true. >> yes. >> thank you so much for joining us. what about you? everyone has their own individual investment needs and chances are, you don't have the luxury of an expert telling you what to do with stocks. when "real money" currents, we'll examine places to push your cash other than in your mattress. keep it here. ♪ what happens when social media uncovers unheard, fascinating news stories? it drives discussion across america. share your story on tv and online.
investors across the globe have pulled hundreds of billions of dollars out of stocks since the economic meltdown five years ago. and now there is a whole new reason to be scared as washington messing around with the debt ceiling. if you are willing to venture online, you mind find better deals. >> reporter: when kristin byars wanted to save money for her wedding, she went to a website called smartypig.com. >> i saved $20,000. >> smarty pig is one of a
growing number of websites that allows savers to save for specific goals. these sights are insured by the government for deposits up to $250,000 but offer higher interest rates. >> it's an internet-based bank. so they don't have all of the brick and mortar stuff. and they know it's to save for a goal. so people will be less likely to be taking money out and putting it back in all the time. >> reporter: investors might also want to consider credit unions. online banks can also higher yields as well, but don't expect the type of gains you get in the stock market. >> you have to be prepared to give up your yield if you want
to be in market like this. >> first stop and think about why am i saving this money? what are my goals? the longer the goal, the longer the time horizon, the more risk you could take. and you should not take any risk with your money if you need to spend the money in less than five years. >> reporter: kristin says the smartest way to save to have a clear picture of what you are saving for. >> have a clear picture of what you are saving for fun and what you are saving for serious. i am saving for tattoo work. i built up an emergency fund using smarty pig and i'm also hoping to save for a down payment for a house.
while kristin may have found a way to sock away savings, you may be worrying about your cash drying up. maybe you are even starting to panic. if you are, you are not air loan. craig smith is just like you. he says if washington doesn't raise the debt ceiling, he is going to cash out. craig good to see you have. thank you so much for being here. you can be forgiven for not, not knowing who to trust on this. some say use it as a buying opportunity, and others spay get out of this market it's dangerous. >> i'm worried that the public will panic, and if the public panics and the stock market starts to plunge, it will be like a torn gathering speed, and if you don't get out you will see your investments and pensions crash.
so watching it very close on the 14th, 15th, it looks like they are not going to get something done, then i think there will be a lot of people that will start cashing out, and the market will drop. >> back before 2008, there were a lot of people that didn't get out, and boy that was a hard year, but in the end the people would have made the money back. markets do come back. are you worried if you get out you won't get back in? >> i'm more worried if i don't get out at age 60, that the market won't come back fast enough for me to recoup when this happened years ago, i had time before retirement to set and wait, and i took it with a grain of salt and said i'll make it back, don't get out. now people that are my age we worry if we take a 20, 30% hit
that may not come back for a long time, and we need to get our money out now. >> would you liquidate all of your investments? >> most of my money is my 401k and ira. i have some international stock, but i'm thinking 14th, 15th of october, going cash and getting out of all of the money markets and the stock holdings and just holding on to the cash until we see what happens. >> craig stay right where you are. i want to bring in a professional. financial planner, is here with me, jonathan. welcome. >> thank you for having me. >> craig is not likely to panic, but he is wisely possibly worried that other people might. what are you hearing? >> clearly every day there are -- i think people's eyes and imagination have been opened to
a wide range of possibilities. i started in this business in the early '90s, and in the decade of the '90s, people were preconditioned on buying on the debt, buying on the debt, and after the dot-com crash, people piled on to real estate. and now people who have 60 or so years old have put people in this mentality. but thinking more rationally, i would point out number 1 you are 60 years old, you retire tomorrow. everyone has a different circumstance and situation, and you have to take an inventory of where you sit. if you think of yourself as a 30-year time line, you have a certain spend rate that you are going to have to sustain over those years. i'm not an all in or all out investor, but if you promulgate
the idea of selling everything and buying everything, it leads to this perpetual problem in the system. if i said i have an idea for a company, and you say i want to invest, and i hire scientists, and you say i'm out. so i fire all of the scientists, and then a week later you say, i'm back. there is no business in america that will promulgate over this buy or sell all. >> right. >> i have looked independently at how the industry works and how investors approach this. there's three takeaways that i would share with you. number 1 if you are investing in mutual funds. if you invested a dollar in stocks over a ten years, only 1%
are going to lose money. so you have a high degree of safety in mutual funds. secondly, many people who tell you to buy stocks even the investment managers themselves do not have all of their money invested alongside of you. what works often is looking for mutual funds that are not investing all of their money in stocks, and they are just like you and i who get nervous and say i don't want to lose all of my cash either -- >> what is your third point. >> then when things get dislocated they can take advantage of those dislocations. >> what is .3? >> you are 60 years old. everything is going to fine. as your previous guest noted earnings season is upon us, there is a lot of businesses
that are doing very well, regardless of what happens in the stock market, there are always businesses that are misvalued and businesses that are very good, high quality -- >> so take advantage of that mentality. craig, a little bit of free advise from a financial planner. i hope you benefited from that. thank you both. gold is looking a bit more golden to invest fors who are worried about the government shutdown. but is moving money into a very volatile commodity the right thing to do?
it is no surprise the talk of u.s. debt default is making gold glitter again. when the going gets rough, buying gold seems to look like a safe move to the precious metal investors. it is volatile. here is a look at why gold has such a hold oin investors. >> human beings have been obsessed with gold since the dawn of civilization from egyptian gold smiths to modern pop culture eye construction. >> i love gold. >> we're still looking for more to turn into jewelry and to buy as bouillon.
under the gold standard adopted by many countries, a government could only print as much money as the gold it had in its vault, but the u.s. eventually abandoned the gold standard in the 30s along with the rest of the world. >> you have to go south africa and dig up tons of gold and move it to the basement of the federal reserve in new york. >> that doesn't stop the reserve from storing about 6700 tons of gold in its vaults. but you may be best served by this golden rule, there is no such thing as, as good as gold. it is only worth what someone else will pay for it. should you be adding gold to your portfolio? gold makes up more than 20% of the permanent portfolio fund which has $11 billion in assets.
the fund's president joints me from san francisco. michael good to see you again. thank you for being with us. >> you as well, ali. >> gold generally makes up that portion of your portfolio all the time. >> that's correct. it's a target asset class among many. so yeah, we believe it's got a lot of properties that are properly diversified. >> so that's why i like talking to you about this, because you are not all in or all out about gold. gold trends to attract people who are all in or all out. they all think it's a scam or they think paper money is worth nothing. how should my viewer be thinking about gold? >> well, i think -- it depends on what your personality and your needs are. there are some people that are trading it. and that's subject to the whims of the comedy's markets, us in
of the day, et cetera. we view it more as a longer term component of a good long-term wealth-building and wealth-maintaining strategy. it's an insurance policy against uncertainty, it doesn't track things on a pure correlated basis, you know, one to one ratio, but generally moves in tandem to offset some of those things. so we invite as a long term component to a properly diversified portfolio. >> what do you say to those that say paper money is worth nothing, but gold always holds its value. >> well, it's a commodity, and it's also an alternative currency. many cultures use it as a store of value, so it has universal appeal. i would disagree with those that
say paper money is worthless any paper currency is partially a reflection of the intangible value of the economic engine underneath the currency, and there's nothing truer than in the united states. one reason why we are the reserve currency, really. there is a property rights, rule of law, dynamic economic activity, sufficient capital and energy and labor, all of those things comprise a growth economy in most cases, and the u.s. dollar represents that. so it's definitely not totally worthless and those are also true of other currencies as well. >> michael always a pleasure to talk to you. >> thanks, ali. don't forget our question of the day, are you worried that the u.s. could slip into a recession if it doesn't raise the debt ceiling?
if you want to see more of tonight's stories log on to our website, aljazeera.com/realmoney. that's our show today. tuesday i get close up and personal with the new $100 bill. get ready for texture, changing color, and other things designed to give fits to counterfeiters. i'm ali velshi. thanks for joining us. ♪
hi, i'm lisa fletcher and you are in the stream. drones in the united states. there will be 30,000 of them flying above your head within the next 20 years. is america ready? ♪ by september 30th of 2015, the faa has to have regulations in place to allow unmanned aerial vehicles, or typically known as drones i